Correlation Between Tres Tentos and Honda

Can any of the company-specific risk be diversified away by investing in both Tres Tentos and Honda at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Tres Tentos and Honda into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Tres Tentos Agroindustrial and Honda Motor Co, you can compare the effects of market volatilities on Tres Tentos and Honda and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Tres Tentos with a short position of Honda. Check out your portfolio center. Please also check ongoing floating volatility patterns of Tres Tentos and Honda.

Diversification Opportunities for Tres Tentos and Honda

-0.89

Correlation Coefficient

Tres Tentos  Honda

Pay attention - limited upside

The 3 months correlation between Tres and Honda is -0.89. Overlapping area represents the amount of risk that can be diversified away by holding Tres Tentos Agroindustrial and Honda Motor Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Honda Motor and Tres Tentos is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Tres Tentos Agroindustrial are associated (or correlated) with Honda. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Honda Motor has no effect on the direction of Tres Tentos i.e., Tres Tentos and Honda go up and down completely randomly.

Pair Corralation between Tres Tentos and Honda

Assuming the 90 days trading horizon Tres Tentos Agroindustrial is expected to under-perform the Honda. But the stock apears to be less risky and, when comparing its historical volatility, Tres Tentos Agroindustrial is 1.2 times less risky than Honda. The stock trades about -0.1 of its potential returns per unit of risk. The Honda Motor Co is currently generating about 0.15 of returns per unit of risk over similar time horizon. If you would invest  15,090  in Honda Motor Co on September 27, 2024 and sell it today you would earn a total of  1,650  from holding Honda Motor Co or generate 10.93% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Tres Tentos Agroindustrial  vs.  Honda Motor Co

Tres Tentos Agroindu

Risk-Adjusted Performance

8 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Tres Tentos Agroindustrial are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively weak basic indicators, Tres Tentos unveiled solid returns over the last few months and may actually be approaching a breakup point.

Honda Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Honda Motor Co has generated negative risk-adjusted returns adding no value to investors with long positions. Despite somewhat strong basic indicators, Honda is not utilizing all of its potentials. The newest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Tres Tentos and Honda

The main advantage of trading using opposite Tres Tentos and Honda positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Tres Tentos position performs unexpectedly, Honda can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Honda will offset losses from the drop in Honda's long position.

The idea behind Tres Tentos Agroindustrial and Honda Motor Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Search module to search for actively traded equities including funds and ETFs from over 30 global markets.